A disturbed former banker who thought he was a character in a novel he was writing has been jailed for at least 10 years for strapping a fake collar bomb around a Sydney teenager's neck.

Paul Douglas Peters broke into the Pulver family's home in Mosman in August 2011 and strapped the fake bomb around 18-year-old Madeleine Pulver's neck before fleeing the house, leaving behind an extortion note.

Police were so baffled by the fake bomb that they called British military experts for advice, and it took 10 hours for the device to be declared safe.

Peters pleaded guilty in March this year after being extradited from the US, where he had fled after the incident.

In the District Court today, Judge Peter Zahra ruled that Peters had inflicted "unimaginable terror" on his victim in a "deliberate act of extortion".

He sentenced him to 13 years and six months in jail, with a non-parole period of 10 years.

Peters cried in the dock, just metres away from his victim and her parents Bill and Belinda Pulver, as the judge recounted the mental turmoil the failed businessman was in at the time of the crime

Referring to Peters' mental health issues, the judge said he told a psychiatrist the "story really started" when his marriage broke down and he lost custody of his children.

Justice Zahra said Peters identified with a character in a novel he was writing, was devastated by his marriage breakdown, and could not remember everything that happened when he went to the Pulver home.

He said Peters had two personalities and seemed to think the people he passed in the street on the way to the Pulvers' house were characters in his book who had come to life.

But he ruled that Peters engaged in a "deliberate act of extortion" when he strapped the fake bomb to Ms Pulver's neck, and said he did not accept that he was in a psychotic state at the time of the crime.

Justice Zahra said Peters' former wife, Deborah Lee Peters, previously told the court Peters had dark moods and a drinking problem, and was increasingly disconnected and behaving unusually.

He said Ms Peters had suggested her former husband get help, but at first he declined.

Peters was arrested at Ms Peters' house in the US state of Kentucky after police followed a string of clues, including a memory stick which included an email address and which was left with the fake bomb.

Earlier this year Ms Peters travelled to Australia to give evidence at the sentencing hearing.

She said her husband may have become an "avenging character"' from a novel he was obsessively writing.

Ms Peters told the court the book was at first a historical novel about Hong Kong, but it changed as her husband's drinking increased and he began to fall apart mentally.

A forensic psychiatrist said that in his disturbed state of mind Peters became ''part of the novel''.